Nov. 8, 2011

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The city of Great Falls commission members met Monday night as the Electric City Power Board and rejected as illegal a 20 percent rate hike approved Oct. 21 by the city's wholesale electricity supplier.

City Attorney James Santoro said the city's legal team considers the Oct. 21 vote "illegal" because only three of the six representatives of the Southern Montana Electric Generation & Transmission Cooperative board were present. That means a quorum was lacking, because at least four board members should have been present for the vote to be legitimate, he said.

Also, late on that day, the diminished Southern Montana board voted to file for Chapter 11 reorganization with the bankruptcy court.

At Monday's meeting, Santoro told the board the city has not gone ahead with any type of challenge to the filing of the bankruptcy petition by half of Southern Montana's board.

"We're not right now," Santoro said after the meeting. "We're gearing up for the hearing on the 17th." That's a creditor hearing set for 9 a.m. on the fifth floor of the federal courthouse in Billings.

Santoro declined to answer when asked if the city is pleased the matter is in federal bankruptcy court.

The city attorney also declined to reveal more about the city's strategy in dealing with the bankruptcy case during the meeting.

"I just can't do that tonight," Santoro told commissioners and others.

One thing no one at the meeting disputed was rejecting the 20 percent rate hike enacted by Southern Montana last month and made retroactive to September. Santoro said Southern Montana's power would cost a hefty $86 per megawatt hour after that most recent hike.

Electric City Power, the city's electric utility arm, already is $5.4 million in the hole, mostly from selling power at a loss to other agencies and businesses. The city has lost money selling power since 2004, although it went into the black in October after raising rates.

Also at Monday's meeting:

» Santoro said the city is in discussions with legal counsel for Barretts Minerals, which dropped the city as a supplier and jumped to PPL for its electricity. Santoro said the full requirements of the contract between the city and Barretts of Dillon did not allow Barretts to leave.

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» Fiscal Services Director Melissa Kinzler said the city has borrowed a total of $5.284 million in spare city cash over the years to keep Electric City Power afloat, adding the general fund could not afford the total amount. She said the city also borrowed from its health insurance fund and from a revolving fund used to replenish city equipment. This internal borrowing "has been getting progressively worse," she said.

» City Manager Greg Doyon said six of the city's 10 remaining customers notified the city they want to quit as ECP customers within a year. They all cited a clause saying if construction of a coal-fired plant had not begun by a certain date, the customer could leave. Southern Montana claimed it did begin construction of the plant, although the plant ultimately was not built. A natural gas-fired plant was build instead.

The meeting placed a sharp focus on the Nov. 17 hearing, when one or more Southern Montana officials may be questioned by creditors.

"This is not before the judge," Santoro told the board. "This really is an information-gathering session."

Santoro also commented on speculation that bankruptcy matters will proceed quickly.

He told the power board the Southern Montana case may be "more of a marathon" than a matter that's over in a flash.

"We are not under the impression that it's going to be a quick fix," Santoro said.

One of the major creditors in the case is PPL EnergyPlus, an unregulated division of PPL, the parent company of PPL Montana, which is already owed more than $7 million for electricity by Billings-based Southern Montana.